Finance

• Water
• Communities
• Funding
• EPA

Revolving Loan Funds

Program Overview

A revolving loan fund (RF) is a gap financing measure primarily used for development and/or expansion of a specific initiative. Often in the case of environmental investment, an RF is related to water management or environmental cleanup. An RF is a self-replenishing pool of money, using interest and principal payments on old loans to issue new ones. Establishing a revolving loan fund provides access to a flexible source of capital that can be used in combination with a number of more conventional sources. Often, the RF is a bridge between the amount the borrower can obtain on the private market and the amount needed to complete the project. In some cases, RFs may finance components of a project (such as environmental cleanup) that may not be bankable using conventional private underwriting criteria. Quality RFs issue loans at market or otherwise competitive and attractive rates and should be built on sound interest rate practices and not perceived as free or easy sources of financing, as RFs must be able to generate enough of an interest rate return to replenish the fund for future loan allocations. With competitive rates and flexible terms, an RF provides access to new financing sources for the borrower while lowering overall risk for participating institutional lenders.

How to Apply this Program

Initial funding of a revolving loan fund usually comes in the form of a grant from public sources, such as the local, state, and federal governments, but can also be public funds blended with private money from financial institutions and philanthropic organizations. While the federal government is a common source of capital, state and local governments can also use one or a combination of the following to capitalize an RF: tax set-asides, general obligation bonds, direct appropriations from the state legislature, annual dues from participating counties or municipalities, and funds directed from the state lottery. In practice there is often a loan review committee or board of directors that takes responsibility for reviewing loan proposals, designating an administrative body (can be public, nonprofit, or private), and contracting a local bank for the loan fund's portfolio management responsibilities. The committee or board is usually a combination of legal, private lending, business, community development, and local government professionals.

Contact Information

U.S. EPA's Center for Environmental Finance 
Website:	www.epa.gov/envirofinance

Examples

U.S. EPA's brownfield office provides grants of up to USD 1 million to cities, states, or quasi-public entities (including "coalitions" of any of these) to capitalize an RF and to provide subgrants to carry out cleanup activities at brownfield sites. Bucks County, PA, near Philadelphia, used its USD 975,000 RF to leverage USD 5.3 million in investment at a 45-acre property on the Delaware River, now a mixed-use development.

In recent years, U.S. EPA's Clean Water State Revolving Fund (CWSRF) has provided more than USD 5 billion annually to fund projects for wastewater treatment, nonpoint source pollution control, and watershed/estuary management. CWSRFs have funded more than USD 89 billion, providing more than 30,012 low-interest loans to date.